Charoen Pokphand Foods

Insights into 1Q14

Following the analyst meeting, we reaffirm our BUY rating on CPF, premised on an FY14 earnings recovery, led by a 2H14 shrimp turnaround, sustained domestic livestock margins (led by higher livestock prices brought about by tighter livestock supplies) and improved overseas livestock prices (due to easing livestock oversupplies in the markets of offshore units).

YoY core turnaround expected for 1Q14

We estimate a Bt1.94bn net profit for 1Q14, up by 89% YoY and 11% QoQ. Excluding FX and a gain from trading CPALL shares, we estimate an Bt888m core profit, up 114% QoQ and a turnaround from a Bt576m core loss in 1Q13. The assumed YoY core turnaround was led by fatter domestic livestock meat margins. The QoQ core profit jump is thanks to fatter domestic livestock meat margins (higher chicken and pork prices outweighed the effect of rising corn and SBM costs) and improved overseas livestock operations in Vietnam, Turkey and India.

The Thai shrimp unit will post a Bt1bn operating loss for 1Q14, shallower by 12% QoQ but deeper by 95% YoY (cold weather in Jan meant lower shrimp output). The Turkish, Vietnamese and Indian units will improve in 1Q14 on the easing of livestock oversupplies in their respective markets. The Vietnamese unit will post a 40% QoQ profit jump and the Turkish unit a 56% QoQ shallower loss, we expect. The Indian unit should report a 48% QoQ shallower loss. Back in Thailand, the 1Q14 chicken price rose by 5% YoY and 9% QoQ and the pork price by 18% YoY and 9% QoQ. The mean corn price dived 20% YoY but rose 5% QoQ. The SBM price was up by 13% YoY and 4% QoQ.

FY14 earnings recovery on-track

We remain confident that domestic and overseas shrimp units will break even in 2H14, led by greater shrimp output in Thailand, Vietnam and Malaysia. Offshore livestock meat operations will improve in FY14 with the easing of livestock meat oversupplies. The Thai livestock meat operation will sustain its strong margin through FY14 on high chicken and pork prices throughout the year, we believe.

The recent spike in the pork price to Bt80/kg was led by a supply shortfall caused by a PPRS outbreak among farmed pigs. Given a 9- to 12-month pig-raising cycle, pork supply can be expected to tighten in 2H14. The recent fall in the domestic chicken price to Bt41/kg was due to low season and a short-term mismatch between initial industry-wide production expansion for raw chicken exports to Japan and the actual start of raw chicken exports to Japan (the industry jumped-the-gun by some months). We expect chicken prices to improve later in 2Q14, led by greater exports to Japan, starting late 2Q14.